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Monday Morning Coffee: Wall Street Sinks as Omicron Worries Persist

Wall Street finished lower on Friday, weighed down by Big Tech as investors worried about the Omicron coronavirus variant and digested the Federal Reserve’s decision to end its pandemic-era stimulus faster. The Dow Jones Industrial Average declined 1.48% to end at 35,365.44, while the S&P 500 lost 1.03% to 4,6270.64 and the Nasdaq Composite dropped 0.07% to 15,169.68. For the week, the Dow dropped 1.7%, the S&P 500 lost 1.9% and the Nasdaq Composite declined 2.9%. The indexes started to decline broadly on Wednesday after the Federal Reserve signaled three-quarter point interest rate increases for 2022 to combat inflation. Adding to the uncertainty, Pfizer said on Friday, the pandemic could extend through next year. European countries geared up for further travel and social restrictions and a study warned the rapidly spreading Omicron variant was five times more likely to reinfect people than its predecessor, Delta. Traders pointed to year-end tax selling and the simultaneous expiration of stock options, stock index features, and index options contracts known as triple witching-as potential causes for increased volatility.

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Monday Morning Coffee: Indexes Advance as Inflation Runs High

The major Wall Street indexes advanced broadly on Friday despite a report that showed inflation running at the highest level in 39 years. The Dow Jones Industrial Average rose 216.3 points, or 0.06% to 35,970.99, the S&P 500 gained 44.57 points, or 0.95% to 4,712.02 and the Nasdaq Composite added 113.23 points, or 0.73% to 15,630.60. The advance in the financial markets came as the CPI report showed inflation advanced 0.8% in November, up 6.8% from a year earlier and the biggest annual increase since 1982. The Fed’s next meeting of the Open Market Committee is this week and investors will be looking for clues to both the pace of the taper on its bond-buying program and hints for interest rate increases. Markets have priced in a potential lift-off for rates starting in Q3-2022 and another move by that year’s end, each move is expected to be by 25 basis points. With supply bottlenecks showing little signs of easing and companies raising wages as they compete for scarce workers, high inflation could persist well into 2022. Investors will be glued to the FMOC meeting looking for clues to a potential earlier lift-off and perhaps, more forceful Fed actions.

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Monday Morning Coffee: Tensions rise as Omicron spreads

The past week was busy with economic news as tensions mounted surrounding the emergence of the Omicron variant. In the wake of a new public health risk, Fed Chair Jerome Powell’s testimony at the Senate’s Banking Committee signaled a possible early end to its bond-buying process, which is currently set to wrap up mid-2022. The change in the Chairman’s tone and the words in his comments put markets on high alert for the mid-December FMOC meeting, where inflation, interest rate policy, and the Omicron variant’s impact will be discussed. At this point, it is hard to judge to a full extent what the public health risks are and how much they will weigh on economic policy. After all, each wave of the COVID virus has had a less economic impact than the last wave. The next few months will be crucial to shaping projections for next year, as we learn which aspects of the variant are similar and different from what we have encountered previously.

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